Home Equity Loan Rates (December 2020)

Loan Term

Interest rate


5 years



10 years



15 years



Check Today’s Rates and Compare Loan Quotes

What is a Home Equity Loan?

A home equity loan, also called a second mortgage, uses the equity in your home as collateral. Home equity loans have low fixed-rates, and a loan term is typically between 5-15 years. Homeowners can borrow up to 80% of the loan-to-value ratio (LTV ratio).

2020 Home Equity Loan Requirements

• 680 minimum credit score

• No late payments in the last 12 months

• Loan-to-value ratio must be 70% or lower

• Maximum 45% debt-to-income ratio

• Borrow up to 80% of the home's market value

Home Equity Loan Pros and Cons

Home Equity Loan Pros and Cons



• Lower interest than personal loans and credit cards

• Reduces the amount of equity you have

• Interest on payments may be tax-deductible

• Closing costs between 2% - 5% of the loan amount

• Loan amount of up to 85% of the loan-to-value ratio ($425,000 limit)

• You can lose your home if you default on the payments

• Fixed interest rate and payments

• Higher interest rate than a HELOC

Home Equity Loan Benefits

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How to Get the Best Rates on a Home Equity Loan

How good a deal you get on a loan comes down to two things, closing costs and the interest rate. Here are things you can do to make sure you’re getting the best rates on your home equity loan.

Check Your Credit

Your credit score is the biggest factor in determining the interest rate on a loan; the higher the score, the lower the rate.

Before you get started on the loan process, you should check your credit score. Several websites allow you to check your credit report and scores for free. Credit Karma and Credit Sesame are the two sites we recommend.

Improve Your Score

Before you start contacting lenders and applying, you should do what you can to increase your score. A higher credit score will give you a better chance of qualifying for the loan and get you a lower rate.

Pay down your credit card balances – Credit utilization ratio is the amount of credit you’re using, and the higher it is, the lower your score will be. Try paying down your card balances to under 25% of the credit limit.

Don’t apply for new credit – Credit inquiries will lower your score, so put off buying a new car or getting a credit card until after you secure a home equity loan.

Dispute errors or negative information – If you find any errors or negative account information on your credit report, you can dispute it with the credit bureaus. The creditor will have 30 days to verify the account, or it will be removed from your report altogether.

Read this article for more tips on how to improve your credit score 

Compare Rates with Multiple Lenders

Don’t make the mistake of getting a loan with the first lender that approves you. Interest rates and closing costs will vary from lender to lender, so it’s a good idea to compare loan offers from at least 3 different lenders.

Use our loan comparison calculator to see which loan is the best deal

Home Equity Loan Alternatives


A home equity line of credit, or HELOC, is very similar to an equity loan. However, instead of receiving a lump sum payment, a HELOC provides a credit line that works like a credit card. With a revolving line of credit, you can borrow what you need when you need it.

Instead of paying interest on the full amount, you only pay interest on the amount borrowed with a HELOC. Unless you need a large sum of cash upfront, a HELOC may be the better option.

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Cash-Out Refinance

cash-out refinance is a new loan that pays off the old mortgage and gives up to 80% of the home’s market value in cash back to the borrower. Both loans are combined into the mortgage loan and will be repaid according to the loan term.

Example: Let’s say your home’s market value is $200,000, and the principal balance on the original mortgage is $100,000. A cash-out refinance will pay off the existing mortgage loan and provide up to 80% of the market value in cash. You will be able to get up to $60,000 in cash; the total principal balance of the new mortgage is $160,000.

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Cash-out Refinance Pros and Cons



Get cash at a lower rate than other types of loans

Closing costs are as much as a regular mortgage

Pay off student loans or other types of debts

Reduces the amount of equity your have in  your home

Pay off high-interest credit cards

Home at risk of foreclosure if you can't make the monthly payments

Renovate and make home repairs

May increase your mortgage payments

Payments are tax-deductible

Spend cash as you please

One mortgage payment

Take advantage of lower interest rates that occur in the housing market

HELOC vs. Home Equity Loans vs. Cash-Out Refinancing

Loan Type

Credit Score

Interest rate

Funds Dispersement

Cash-out Refinance


Fixed-rate rates

Lump sum payment

Home Equity Loan


Fixed or adjustable rates

Lump sum payment



Variable rate

Line of credit